Pfizer makes massive R&D cuts, and exits RNAi and regenerative medicine therapeutics

Allan B. Haberman, Ph.D

Piwi-siRNA base pairing. Source: Narayanese

In our November 23, 2010 blog post, we discussed Roche’s November 2010 R&D cuts, especially its decision to discontinue R&D in RNAi therapeutics. This had followed closely on the October 2010 publication of our report RNAi Therapeutics: Second-Generation Candidates Build Momentum (Insight Pharma Reports, Cambridge Healthtech Institute). Our report included a discussion of Big Pharma efforts in therapeutic RNAi R&D, specifically including Roche.

Now a second Big Pharma with a significant internal therapeutic RNAI R&D project area covered in our report, Pfizer, announced on February 1, 2011, that it was exiting therapeutic RNAi R&D. This was a small part of a global R&D restructuring plan aimed at saving the company $1.5 billion. The new R&D cuts at Pfizer will eliminate an estimated 3500 jobs worldwide, and will close Pfizer’s large R&D facility in Sandwich, U.K. (eliminating 2400 jobs) and eliminate 1100 jobs at its large R&D facility in Groton, Connecticut.

In addition to exiting RNAi therapeutics research, Pfizer is also discontinuing most of its regenerative medicine research. Both research groups are located at the company’s Memorial Drive laboratory in Cambridge, MA, which will be closed, resulting in approximately 100 layoffs.

Other areas to be discontinued include allergy and respiratory medicine and internal medicine (located in Sandwich), and antibacterials (located in Groton). Pfizer will focus its R&D efforts in neuroscience, cardiovascular, metabolic and endocrine diseases, inflammation and immunology, oncology, and vaccines. The company will create new units in pain and sensory disorders, biosimilars, and Asia R&D. Pfizer’s regenerative medicine group in Cambridge, UK (which had been focusing on development of preclinical embryonic stem (ES) cell-based ophthalmology therapies, in collaboration with the University of London) will be folded into the new pain and sensory disorder research unit.

Although Pfizer will be closing the Memorial Drive laboratory in Cambridge, MA, it intends to expand its R&D efforts in Cambridge/Boston, creating an estimated 450 new jobs. Cardiovascular and neuroscience units will be moved from Groton to a new facility (yet to be acquired or built) in Cambridge/Boston. Pfizer will also maintain its manufacturing and research facility in Andover, MA, which specializes in biologics. Pfizer plans for its R&D units in Cambridge/Boston to interact more intensively with the local biomedical research and entrepreneurial community.

Pfizer’s Sandwich laboratories have long served as the company’s center for small-molecule drug discovery. Researchers at Sandwich discovered such drugs as the erectile dysfunction treatment Viagra, the blood pressure medicine Norvasc, and the antifungal Diflucan.

According to company spokespeople, it is possible that Pfizer might partner, out-license, or spin off some of its discontinued research programs. And some venture capitalists also expect to see new biotech companies emerge, at least from the Sandwich site.

This latest Pfizer R&D restructuring is on top of the 15% of its 128,000 employees Pfizer laid off over the past two years after its acquisition of Wyeth. In late 2009, the company said it was closing six of its 20 research sites as it reduced its R&D operations by 35%. A major factor in the latest round of layoffs and facility closings is the impending loss of patent protection (in Novemer 2011) for Pfizer’s largest-selling drug, the cholesterol-lowering agent Lipitor (atorvastatin). This is coupled with Pfizer’s R&D productivity deficit, and resulting inability to bring enough large-selling drugs to market to maintain its growth.

According to Pfizer’s new CEO, Ian C. Read, “The most fundamental question that Pfizer has to fix is our innovative core. This [restructuring] is the start of fixing that in a way that will give us consistent productivity in our innovation.” Read further says that the company’s goal is to stop putting resources into high-risk areas that provide a low return on investment or where Pfizer lacks the expertise to compete.

Pfizer’s exit from RNAi and regenerative medicine: the issue of technological prematurity

The RNAi therapeutics research and biotech company community, is as expected focused on Pfizer’s discontinuation of its efforts in this area. Even the New York Times has echoed this emphasis, with an article that is marred by several erroneous statements. [For example, in humans the RNAi pathway, although one of its functions is defense against viruses (as stated in the article), is mainly involved in a fundamental process of cellular regulation, principally via microRNAs.] Pfizer’s exit from the RNAi therapy field comes on the heels of the discontinuation of therapeutic RNAi research at Roche, and of Novartis’ termination of its 5-year partnership with Alnylam. According to  Dirk Haussecker’s RNAi Therapeutics blog, Big Pharmas have decided to exit internal development of RNAi technologies and drugs, and to wait to partner with or acquire RNAi specialty companies as their RNAi therapeutics programs yield meaningful clinical results. (Even Pfizer already has two external RNAi collaborations, with Quark and Tacere.) Dr. Haussecker himself plans to blog less, and only resume blogging as clinical results come in.

Despite this focus on Pfizer’s RNAi discontinuation by RNAi researchers and some journalists, Pfizer’s exit from RNAi therapeutics R&D is a small part of the company’s restructuring. It should therefore be put into the context of the strategic intent of the company’s restructuring as a whole. From our point of view, it is significant that Pfizer is discontinuing not only RNAi therapeutics R&D, but also regenerative medicine R&D.

The very first article on this blog, dated July 13, 2009, is entitled “RNAi, embryonic stem cells, and technological prematurity”. Both RNAi therapeutics and ES cell research (the latter of which includes induced pluripotent stem cells as well as ES cells per se, and which is the basis for Pfizer’s regenerative medicine R&D) are technologically premature, or at the very least very early-stage technologies. (Regenerative medicine based on adult stem cells is also technologically premature.) As the New York Times article–among others–points out, monoclonal antibody (MAb) therapeutics took 20 years from the time of the discovery of MAbs to achieve market success, and RNAi therapeutics might have a similar timeline. So might regenerative medicine based on stem cell technology.

However, a premature technology is not simply a technology that takes a long time to be translated into successful products. It is a technology that requires development of enabling technologies to overcome hurdles to development, and to move the technology up the development curve. MAb therapeutics represented a classic case of a premature technology. We discussed the history of the MAb therapeutics field in our September 28, 2009 blog article. Successful enabling technologies for MAb therapeutics began to be developed in the early 1980s, by biotechnology companies and by academic laboratories. Some of these companies eventually became leaders in the MAb field.

Arguably the most successful MAb development company, Genentech, developed enabling technologies in collaboration with academic researchers beginning in the early 1980s. But Genentech’s first MAb products, the highly successful antitumor agents Rituxan (codeveloped with Idec) and Herceptin, did not reach the market until 1997 and 1998, respectively. Roche purchased a majority stake in Genentech in 1990, when Genentech needed an infusion of capital to complete clinical development of its MAb products. In 2009, Roche moved to fully acquire Genentech, which now operates as a wholly-owned subsidiary. Most of the other leaders in the MAb therapeutics field were acquired by Big Pharmas or Big Biotechs in the late 1990s, after the MAb field became successful.

The take-home lessons for RNAi therapeutics and stem cell-based regenerative medicine R&D are that enabling technologies are necessary to move these fields up the technology development curve as well. In the case of RNAi therapeutics, specialty biotech companies in that area have been busy working on such enabling technologies, in two principal areas–design of the oligonucleotide molecules themselves, and delivery technologies. With respect to oligonucleotide design, certain types of chemical modifications enabled researchers to develop siRNAs (small interfering RNAs) that do not trigger an innate immune response. The immunogenicity of early siRNA drug candidates was a significant hurdle to the development of siRNA therapeutics. The New York Times article sounds as if the problem of immunogenicity of siRNAs has not been overcome, which is not true.

Ironically, the article quotes Arthur Krieg, the head of the RNAi group at Pfizer, in support of this contention. But although Dr. Krieg did the studies quoted in the article that showed the extent of the problem of immunogenicity in early siRNA candidates, he himself is one of the researchers who developed means to overcome this problem. Dr. Kreig came to Pfizer via the company’s 2008 acquisition of Coley Pharmaceuticals, where he was the head of R&D. Coley was focused on developing RNA-based immunotherapeutics, so Dr. Kreig is a leader in the field of RNA-mediated immunogenicity. As a result of the Coley acquisition, Pfizer has been developing oligonucleotide vaccine adjuvants, which are now in Phase III trials and have been licensed to GlaxoSmithKline.

Even when enabling technologies that ultimately prove to be successful have been developed, it typically takes many years before this produces promising clinical results, let alone approved drugs. The example of Genentech, which developed its patented MAb enabling technology platform in the early 1980s, but produced no marketed drugs based on that technology platform until the late 1990s, is illustrative of this point. (Of course, the long timeline to produce any marketed drug, from initial drug discovery to approval, is a large part of the reason for this time gap.) Therefore, any company that undertakes to develop products based on an exciting, but premature, technology must be both highly creative and very patient–and have patient capital behind it. An infusion of capital as such a company moves into the clinical phase–as with Roche’s 1990 equity investment in Genentech, helps as well.

The reward for companies that develop products based on a premature technology is that such a company may become a leader in an important new area of technology, with a large market. However, the risk of undertaking such a course of action is high.

As we discussed in our 2010 RNAi therapeutics report, Big Pharma was interested in getting into RNAi therapeutics, despite the field’s risks, in part because of its past experience with MAbs and other biologics. Because Big Pharma companies had failed to get into the now highly successful biologics field early, acquiring a major stake in that field had been expensive. Seeing the promise of RNAi therapeutics, Big Pharmas were therefore eager to get into RNAi therapeutics early, in the hope of capturing a commanding position in the field once drugs reached the market.

However, with any RNAi drugs still far in the future, and with their increasing short-term pressures, Big Pharmas have been losing the needed patience to continue with a technologically premature field like RNAi therapeutics. Therefore. their interest has been cooling. As (according to the New York Times article) Klaus Stein, head of therapeutic modalities for Roche, said, “I have no doubt that at a certain point in time RNAi will make it to the market….[but] when we looked into this, we came to the conclusion that we have opportunities that have higher priorities.”

Meanwhile, R&D and dealmaking continues in the small RNAi and microRNA specialty companies. For example, on February 3, 2010, it was announced that RNAi specialty firm Marina Biotech (Bothell, WA) entered into an agreement with Swiss biotech development group Debiopharm to develop and commercialize Marina’s preclinical RNAi-based therapy for bladder cancer. The deal is worth up to $25 million to Marina, based on predefined R&D milestones and royalties on the sales of products resulting from the agreement. Also in February 2010, Marina raised $5.1 million in a new public offering, and plans to use the proceeds to fund development of a drug candidate for familial adenomatous polyposis (FAP).

Preclinical and clinical studies are also continuing at such leading RNAi or microRNA therapeutics companies as Alnylam, Tekmira, Quark, RXi, Silence, Calando, Dicerna, Regulus, Santaris, and miRagen. If and when the products of these companies reach late-stage trials or commercialization, Big Pharmas may have to partner for or acquire these products or companies on a similar basis as for biologics in the last decade. A  key question is whether the RNAi/microRNA therapeutic sector can raise enough capital to fund its R&D, now that several Big Pharmas’ exit from the field appears to have dampened investors’ interest.

Pfizer’s restructuring strategy as a whole

As for Pfizer’s restructuring as a whole, we discussed the Big Pharma strategy of attempting to deal with loss of revenues from aging blockbusters and the lack of R&D productivity via megamergers, restructuring, and outsourcing in our February 19, 2010 blog post. Earlier megamergers, such as Pfizer’s acquisitions of Warner-Lambert in 2000 and of Pharmacia in 2002, followed by restructurings, enabled Pfizer to acquire blockbuster products (including Lipitor) and to realize significant cost savings from staff reductions. However, the continuing lack of productivity in R&D and the looming patent expiration of Lipitor and other large-selling drugs, motivated Pfizer management to enter into yet another megamerger, with Wyeth in 2009.

However, the Wyeth acquisition has not altered Pfizer’s fundamental issues. R&D productivity remains low, and Pfizer is the Big Pharma company that is most affected by upcoming patient expirations. Patent expirations are expected to expose approximately two-thirds of Pfizer’s total sales to generic competition over the next three years. This is mainly due to Pfizer’s dependence on revenues from Lipitor.

Meanwhile, Pfizer is maintaining its stock price not only by R&D retrenchment, but by spending $5 billion to buy back its own stock. The combination of cutting R&D and stock buy-backs is popular with investors. As of February 4, Pfizer’s stock was up 5.2% since the February 1 announcement of the R&D cuts and stock buy-back. In contrast, Merck’s new CEO Ken Frazier said on February 3 that that company would not make the cuts necessary to meet its long-term earnings forecasts. Instead, it would focus on investing in pharmaceutical R&D to drive future growth. Merck’s stock dropped 2.7% that day. However, Pfizer’s stock buy-back and R&D cuts only provide temporary relief, since they do not alter the fundamentals.

Meanwhile, the “other Merck”, Merck KGaA (Darmstadt, Germany), is expanding its R&D. This includes expansion of the company’s facility in Billerica, MA, where it will hire about 100 new researchers, doubling its staff. The Billerica R&D team will focus on discovery and development of new agents for cancer, neurodegenerative diseases and infertility.

As for Pfizer’s exiting the therapeutic areas of allergy, respiratory medicine, and internal medicine, it makes sense for a company to terminate programs that have not been productive. However, which areas to cut will vary by company. For example, in our February 19, 2010 blog post, we mentioned that GlaxoSmithKline (GSK) had eliminated its R&D in depression, anxiety, and pain. In contrast, Pfizer is building a new unit in pain and sensory disorders.

The main issue, however, as Pfizer’s CEO Ian Read said, is for Pfizer to fix its “innovative core”. The restructuring may help by freeing resources that had been devoted to low productivity therapeutic areas, and to high-risk/low-return areas. However, the cutbacks will not fix Pfizer’s low R&D productivity in any fundamental way.

As with other Big Pharma companies, Pfizer needs to fundamentally rethink its R&D strategy, and move towards the types of “smarter R&D” and partnering discussed in our December 3, 2010 blog article, and in the one-page article by GSK CEO Andrew Witty referenced in that article. This does not mean copying other companies’ “smart R&D” strategies, even Novartis’ or Roche/Genentech’s strategies that have been the most successful. It means developing a new R&D and partnering strategy specific for Pfizer, based on the fundamentals of what has worked in R&D in the past ten years or so, and building on Pfizer’s R&D assets. (Given the fast-changing nature of biomedical science and technology, as well as of the pharmaceutical and health care business landscape, even companies like Novartis and Roche/Genentech need to keep honing their R&D and partnering strategies.)

As we stated in our December 3 2010 article, this revamping of R&D strategy may well enable Pfizer to achieve additional cost savings. However, such selective R&D budget cuts would not impair the ability of the company to successfully discover and develop new, medically-significant drugs as across-the-board cuts tend to do.

Pfizer’s decision to concentrate its R&D facilities in research hubs such as Greater Boston, and to mandate that its researchers interact more intensively with academic and biotechnology researchers and entrepreneurs located in these hubs, can facilitate moving towards a “smarter R&D” and partnering strategy. We in the Boston area welcome Pfizer researchers and executives who will be moving here, and hope that we can work with Pfizer to help facilitate its R&D success.


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